Capital allocation is the process of deciding how to deploy a firm’s financial resources in a manner that will generate the optimal return for shareholders. Our Capital Allocation practice is built upon our strong corporate finance foundation and is designed to help companies critically evaluate their capital investments, expansion initiatives, and divestment opportunities, so they can pursue projects that will generate the maximum value for all stakeholders involved.
W e have found that highly successful companies are consistent and dynamic capital allocators. These companies continually grow by investing in existing businesses, developing or acquiring new businesses, and exiting unprofitable ones. However, the topic of capital allocation is still often overlooked by many. Seeing that this was the case, we have dedicated one of our consulting practices to solely helping companies make better capital allocation decisions, so they can drive profitable growth and generate meaningful returns on invested capital. Here is how we help.
“To be a successful CEO, over long periods of time, you need to do two things well – you have to optimize the profits of the business you are running and you then need to invest or allocate those profits.”
– William Thorndike
A prudent investor understands that an investment is only attractive if there is a significant gap between value and price. Similarly, acquisitions are only attractive when there is a compelling discrepancy between the value that can be extracted and the price at which it must pay for the acquisition. We help organizations quantify this value.
Holding on to an underperforming asset is costly to an organization, as it not only drains capital but also depresses the price the market assigns to the company. As such, determining which business units to divest is as important as determining which to keep. We work with leadership teams to evaluate business units that are weighing down their organizations and the best way to exit such businesses while capturing the most value in the process.
Using internal cash flow, not capital from debt or equity raise, is the most economical and sustainable way to grow a business. Optimizing cash flow is, therefore, one of the most crucial tasks of an effective capital allocator. Leveraging our expertise in Pricing and Costing, we work with CEOs and finance teams to uncover ways to maximize free cash flow through in-depth analysis of their cost structures, cash conversion cycle, and working capital requirements.
Undertaking a new capital project involves a great deal of financial uncertainties. We help clients minimize these uncertainties by providing visibility to cash flows, return profiles, payback period, and risk factors of large capital projects through in-depth market studies, competitive intelligence, and financial modeling.